logo

Essay on Consumer Equilibrium

   

Added on  2021-02-19

10 Pages2028 Words331 Views
CONCEPTS ESSAY

Table of ContentsINTRODUCTION...........................................................................................................................3MAIN BODY..................................................................................................................................3ASSESSMENT 1.............................................................................................................................3Consumer Equilibrium.................................................................................................................3Marginal rate of Substitution.......................................................................................................5Returns to Scale...........................................................................................................................7CONCLUSION................................................................................................................................9REFERENCES................................................................................................................................1Figure 1: Consumer Equilibrium in Single Commodity..................................................................3Figure 2: Two Commodity Case......................................................................................................4Figure 3: Consumer Equilibrium in Two Commodity Case............................................................5Figure 4: Indifference Curve and MRS...........................................................................................6Figure 5: Different stages of return to scale....................................................................................7Figure 6: Increasing returns to scale................................................................................................8Figure 7: Constant returns to scale..................................................................................................8Figure 8: Diminishing returns to scale.............................................................................................9

INTRODUCTIONIn this report, a short essay has been presented on three different topics i.e. ConsumerEquilibrium, Marginal rate of substitution and Returns to scale. MAIN BODYASSESSMENT 1Consumer EquilibriumConsumer Equilibrium can be defined as a situation in which the consumer has achievedmaximum level of satisfaction within a given income level and is in a state of balance withoutany intended change in the current state (Ming and Tunca, 2019). There are two classification ofconsumer equilibrium into single commodity and two commodities. In case of a single commodity, a consumer compares the price of commodity with eachadditional unit of marginal utility i.e. the benefit derived and when the marginal utility is exactlyequal to the price, the consumer is said to be at equilibrium. For e.g.- A consumer intends tospend his entire income on buying commodity X costing $5 per unit. If consumption is increasedto 6 units, the price rises to $5 but Marginal Utility is $6 and if consumption is reduced to 2 unitsprice is at $5 but marginal utility is at $2. Therefore the ideal situation in which the consumerwill be at equilibrium is while buying 5 units at $5.Figure 1: Consumer Equilibrium in Single CommodityA consumer is therefore said to be at equilibrium when he reaches point E where marginal utilityis equivalent to the income expenditure.

End of preview

Want to access all the pages? Upload your documents or become a member.

Related Documents
Microeconomics: Cardinal and Ordinal Approach to Consumer Equilibrium
|13
|2932
|31

Microeconomic- Assignment
|9
|1427
|70

Impact of Tax on Cigarettes on Alcohol Consumption
|9
|2050
|88

Economics for Managers: Micro and Macro Economics
|14
|1762
|90

Differentiating Cardinal and Ordinal Approaches on Consumer Behaviour and Evaluating the Usefulness of Elasticity
|12
|3233
|64

The Managerial Economics Final Take-Home Exam 2019 Course Title: Managerial Economics 2009 H CARLETON UNIVERSITY
|18
|3362
|22